Not Your Imagination: Gas, Car, Soda Prices Went Up in the Past Year

Prices of consumer goods in the country became more expensive than what the government expected last year.

In fact, the Philippine Statistics Authority (PSA) reported in the first week of January that the 2018 average inflation, or the rate of how fast prices of consumer goods increased last year, stood at 5.2 percent. This is way above the government’s target range of just two to four percent for the whole year.

It is also almost double of the average headline inflation in 2017—which stood at just 2.9 percent.

Since January, prices of commodities in the country continued to rise from 3.4 percent to a high of 6.7 percent in September and October. This is the highest increase the Philippines has experienced in nine years.

Economic analysts have cited many possible causes for the continuous upticks last year. Some have pointed out international factors, such as rising global oil prices and the weakening of peso in the foreign exchange market.

The graph above suggests a direct correlation between rising inflation and the falling of the Philippine peso. The monthly average exchange rate fell to a low of P54.01 per dollar in October, during which the inflation was at its peak.

While a weaker peso is not necessarily a bad thing, since sectors like business process outsourcing (BPO) and overseas Filipino workers (OFWs) benefit from it, the depreciation of peso does make imported or foreign goods more expensive (i.e. oil).

Last year, though, prices soared not only for the foreign goods but also for local consumer commodities. The passage of the Tax Reform for Acceleration and Inclusion (TRAIN) law at the start of 2018 may have affected the inflation spikes last year.

Along with the implementation of the TRAIN law in January 2018 were new excise taxes applied to certain local consumer products: petroleum, sugar-sweetened beverages, vehicles, etc.—making these goods even costlier for the common people to purchase.

Diesel prices increased by P2.50 per liter last year, while gasoline increased by P7 per liter under TRAIN. Similarly, the cost of sweetened beverages with caloric and non-caloric sweeteners, such as carbonated beverages and sodas, increased by P6 per liter.

It became costlier to purchase a brand new car last year, too. The price of a Mitsubishi Mirage GLX, for example, jumped by P9,946 from P555,000 to P564,946 according to estimates by advocacy policy group Action on Economic Reforms in December 2017.

But the country’s headline inflation did taper off starting in November to six percent, the first time it slowed down during the whole year. It decelerated even further to 5.1 percent in December.

“This signifies that the mitigating measures already in force are broadly effective,” the government’s economic team in a joint statement on the full-year 2018 inflation released on January 4. The team is composed of the National Economic Development Authority (NEDA), Department of Finance (DOF), and the Department of Budget and Management (DBM).

Although prices have eased in the meantime, the high levels of inflation spikes throughout the year have already created a heavy toll on the masses, especially minimum wage earners.

“The rate of price increases has remained manageable, giving the country adequate elbow room to sustain its economic growth and reach its development goals. Still, we understand that the faster inflation, particularly in the middle of 2018, had affected many Filipinos, most especially those in the disadvantaged sectors,” the economic team said.

The graph above suggests the strong relationship between price increases in consumer goods and poverty.

Social Weather Stations (SWS), a private social research institution in the Philippines, regularly surveys households and asks how many of them consider themselves as poor.

Using this data, we charted it alongside the inflation levels and found that the self-rated poverty rate generally follows the movement of prices—though not as extreme. The highest poverty rate last year stood at 52 percent, which also occurred in the third quarter or the period that recorded the highest inflation rate.

“While we can say that the worst seems over given the signs of easing price pressures, we continue to be vigilant of possible risks,” the team added.

What now?

Going forward in 2019, the government’s economic team has mapped out its plans to counter inflation and achieve its maintained target range of two to four percent.

For one, they mentioned the passage of the rice tariffication bill, which is aimed to lower the prices of rice by as much as P7.00 per kilo. “We recognize, however, that this favorable effect can only be sustained if there are more players in the rice market, starting from production and financing to post-harvest and trading,” they said.

They are also pushing for the full operationalization of the National Single Window, a computerized and online system of submitting import, export, and other transit-related regulatory requirements spearheaded by the Bureau of Customs, to ramp up its anti-smuggling measures.

Lastly, they called for concerned government agencies to expedite the implementation of the “mitigating measures” under the TRAIN law, such as the unconditional cash transfer and fuel vouchers.

“These could fend off possible second-round effects, which may arise from further demand for wage and fare increases,” the team said.